Wednesday, 31 July 2013

The IAF has issued a verbose "clarification" that is full of evasions and outright falsehoods

By Ajai Shukla

Business Standard, 31st July 13

Two news reports in Business
Standard on Monday and Tuesday have elicited a “clarification” from the
Indian Air Force (IAF).

The two articles (July 29, “Indian Air Force at war with
Hindustan Aeronautics; wants to import, not build, a trainer”; and July 30, IAF
diluted at least 12 benchmarks for trainer aircraft) reported on a letter from
Indian Air Force (IAF) chief, Air Chief Marshal NAK Browne, to Defence Minister
AK Antony, requesting that a contract for 106 trainer aircraft be awarded to
Swiss company, Pilatus. Hindustan Aeronautics Ltd (HAL), which is currently
developing the trainer, should be stripped of the contract, says Browne.

The news reports are based on documents available with Business Standard.

They report Browne’s unprecedented assault on HAL, which he
has accused of misrepresenting the cost of their trainer --- called the
Hindustan Turbo Trainer–40 (HTT-40) --- and of being incapable of delivering it
on time to the IAF.

Browne has written to Antony that the HTT-40 would cost Rs
43.59 crore apiece at 2011 prices and, after factoring in forex escalation and
inflation, would cost Rs 59.31 crore in 2018 and Rs 64.77 crore in 2020.

The IAF chief contrasts this with the cost of the Pilatus PC-7
Mark II, which he claims costs just Rs 30 crore apiece.

That figure of Rs 30 crore is incorrect. The cost of the
PC-7 Mark II is derived from the IAF’s contract for 75 PC-7 Mark II trainers,
signed on May 24, 2012 for Swiss Franc 557 million (Rs 3,606 crore). The
contract specifies that each trainer would cost Swiss Francs 6.09 million.
Since payment is linked to delivery, the cost of each PC-7 Mark II is touching
Rs 40 crore today.

The news reports also reveal that at least 12 changes were
made to performance benchmarks for the basic trainer the month after it was
decided to buy 75 out of the IAF’s overall requirement of 181 trainers from the
global market, while HAL developed the remaining 106.

Surprisingly, the performance benchmarks that were imposed
on HAL (in a March 2009 document called the Preliminary Staff Qualitative
Requirements, or PSQR) were exceptionally stringent. These were subsequently diluted,
the month after it was decided to buy abroad, and issued in Oct 2009 in a
document called the Air Staff Qualitative Requirements (ASQR).

In a happy coincidence, the diluted ASQR allowed the PC-7
Mark II to qualify (it did not meet the PSQR requirement, which had been imposed
on HAL). Without that dilution, Pilatus would have had to field the PC-21, a costlier
trainer that would have been unlikely to be the lowest bidder. Making the PC-7
Mark II technically compliant by lowering the specifications brought a low-cost
trainer into contention.

Meanwhile the other trainers that qualified --- the Korean
Aerospace KT-1; and the American Hawker-Beechcraft T-6C Texan-II --- were qualitatively
better (meeting the PSQR requirements), but also more expensive. The PC-7 Mark
II won the contract as the cheapest trainer that met the (lowered)
specifications.

Comments were sought from the IAF before each news report,
but it chose to remain silent. Today, the IAF has responded with a lengthy
“clarification”.

The IAF’s first response is that the stringent benchmarks in
the PSQR that was imposed on HAL in Mar 2009 were only “Desirable” parameters
for the trainer, not “Essential” parameters. In lengthy citations of the
Defence Procurement Policy, the IAF tries to suggest that there was no dilution
of QRs, only a legitimate paring of “Desirable” parameters.

This is not a valid argument. The PSQR, of which Business
Standard has a copy, does not differentiate between “Essential” and “Desirable”
parameters. All parameters are listed together, with no differentiation.

HAL officials, speaking anonymously, confirm that, until the
parameters were diluted in the ASQR issued in Oct 2009, the HTT-40 was being
built to meet all the parameters in the PSQR.

The IAF also suggests that no rules were broken, since the
PSQR was revised downwards along with the ASQR, after benchmarks were lowered
in Oct 2009. “The amended ‘PSQR’ after ratification by (the MoD) on 01 December
2009 were issued to HAL… Therefore, as on date, PSQR and ASQR are similar.

That neatly sidesteps the essential point of the news report
--- which was that performance benchmarks were irregularly lowered when it came
to a global buy. The PSQR was lowered, as was the ASQR. It matters little that
they are similar today. In that respect, the IAF confirms a key point made by
Business Standard.

The IAF seeks to validate the selection of the PC-7 Mark II by
stating, “It needs to be noted that the (tender) for BTA received maximum
responses generating the largest competition in aircraft procurement in recent
history, wherein M/s Pilatus was one of the three vendors who met all ASQR and…
emerged as the L1 (lowest bid) vendor on the basis of their commercial
offer.”

This evades the point that lowered benchmarks appear to have
allowed the PC-7 Mark II to meet the specifications, introducing a low-cost aircraft
into the contest.

The deal was held up for almost a year after the Korean
defence minister wrote personally to Antony requesting him to intercede. An
internal MoD investigation eventually gave a go-ahead.

The IAF also suggests that the compromise made in crucial
safety specifications, by removing the need for a “zero-zero” ejection seat
(which allows the pilot to bail out even while the aircraft is stationary on
the ground) was done because “retaining the ASQR of 0-0 ejection seat would
have narrowed the competition to only two vendors.” Lowering the specifications
“ensured that more than seven vendors remained in the competition.”

On the one hand, this argument accepts that specifications
in even “Essential” parameters were lowered. However, the Defence Procurement
Procedure (DPP) nowhere states that important safety compromises can be made to
generate competition. And the fact is that the PC-7 Mark II does not have a
“zero-zero” ejection seat.

The IAF also tries to justify its dilution of multiple criteria
reported by Business Standard by responding that “both the ASQR and current
PSQR” do not stipulate requirements for parameters like cockpit pressurization;
external vision criteria; in-flight simulation (for simulating failures); take
off within 1000 metres; and maximum speed of 450 kmph.

That the ASQR and current PSQR have identical benchmarks
does not exonerate the improper dilution of benchmarks in the “current PSQR” after
taking a decision to buy the basic trainer from the global market.

In other respects --- as evident from the Pilatus PC-7 Mark
II webpage on the internet --- the IAF “clarification” contains outright
falsehoods. It claims that “the maximum speed of the PC-7 Mk Il is 555 kmph and
not 448 kmph as falsely stated in the news article.”

In fact, as is well known, the maximum speed of an aircraft
is calculated in level flight at sea level and the Pilatus website (http://www.pilatus-aircraft.com/#46)
states that this is 448 kmph.

The IAF “clarification” admits that the IAF chief gave out
false figures in his letter to the RM, since the current exchange rate was not
factored in. The IAF now says the PC-7 Mark II would cost Rs 38.3 crore. And it
now says the HTT-40 would be 25 per cent more expensive than the PC-7 Mark II.

Browne’s letter to Antony had stated, “As per the contract,
the unit price of PC-7 Mk II is INR 30 Cr for the mean delivery year of 2014.
The aircraft would be supplied at the same cost up to 2017 under the “Option
Clause”. Hence the HTT-40 will be more expensive to the IAF when compared with
the PC-7 Mk II by over 89% from 2018 onwards.”

“It is unprecedented for a service chief to present
incorrect figures to the Raksha Mantri,” says a senior MoD official
anonymously. “And what makes this doubly damning is that the air chief is using
incorrect figures to make a case for a foreign vendor.”

Tuesday, 30 July 2013

Air Chief Marshal NAK Browne, first as Deputy Chief and now as IAF Chief, has been surprisingly nice to Pilatus

By Ajai
Shukla

Business Standard, 30th July 13

Former
Indian Air Force (IAF) head, Air Chief Marshal SC Tyagi, faces a CBI charge
sheet for allegedly diluting a single specification of the VVIP helicopter that
India was buying. In the so-called Air Staff Qualitative Requirements (ASQR),
the helicopter’s service ceiling was lowered from 6,000 to 4,500 metres. This
made the AW-101 helicopter eligible and its Anglo-Italian manufacturer, AgustaWestland,
bagged the Euro 556 million (Rs 4,377 crore) IAF contract for 12 helicopters.

That
violation, now under investigation, is dwarfed in the IAF’s purchase of the
Pilatus PC-7 Mark II basic trainer aircraft (BTA), where at least 12 benchmarks
were changed between March and October 2009, including some relating to pilot
safety. But they allowed the PC-7 Mark II, fielded by Swiss company Pilatus, to
qualify and win an IAF order worth US $640 million (Rs 3,780 crore) for 75 BTA.

Business
Standard is in possession of the documents relating to this case. Contacted for
comments, the IAF has chosen not to respond.

But these
began getting diluted in Sept 2009, when the MoD permitted the IAF to import 75
BTA through a global tender. Within days, the IAF issued relaxed criteria,
termed “Air Staff Qualitative Requirements”, or ASQR, in a document numbered
ASQR 18/09. While the Pilatus PC-7 Mark II would not have met the earlier PSQR
that were formulated for HAL, the new ASQR seems almost to be tailored for
Pilatus.

Amongst the
twelve dilutions that Business Standard has identified, the most worrisome is
doing away with the requirement for a “zero-zero ejection seat.” This allows
pilots to eject even from a stationary aircraft on the ground (zero altitude,
zero speed). The Oct 2009 ASQR does not require a zero-zero ejection seat. Since
the PC-7 Mk II has “zero-sixty” ejection seats, i.e. the aircraft must be
moving at sixty knots (110 kmph), dropping the requirement for zero-zero
ejection seats made it eligible for the IAF contract.

The PSQR of
Mar 2009 required the BTA to have a pressurized cockpit, letting the trainee
fly at altitudes above 15-20,000 feet. But the ASQR of Oct 2009 dispensed with
this requirement. The PC-7 Mark II has an unpressurized cockpit.

Also
diluted was the requirement for good external vision from the instructor’s rear
cockpit, a crucial attribute in a BTA. The PSQR of Mar 2009 mandated a field of
view of “minus 8 degree vision” for the rear cockpit. But the ASQR of Oct 2009
dispensed with that, specifying only that, “the rear cockpit should be
sufficiently raised to allow safe flight instruction.” The PC-7 Mark II, which
does not meet the 8-degree specification, became eligible.

“Glide ratio”
is another important attribute for a light, single-engine aircraft. The glide
ratio of 12:1, specified in the Mar 2008 PSQR, meant that the trainer could
glide, in the event of an engine failure or shutdown, a distance of 12
kilometres for every one kilometre of altitude that it lost. That would enable
a BTA that was flying at an altitude of 5 kilometres to glide for 60
kilometres, landing safely at any airport within that distance. But the Oct
2009 ASQR relaxed the glide-ratio requirement to 10:1. That is precisely the
glide-ratio of the Pilatus PC-7 Mark II.

The ASQR of
Oct 2009 also relaxed the requirement for “in-flight simulation”. This permits
the instructor in the rear cockpit to electronically simulate instrument failures,
training the rookie pilot to handle an emergency. The PSQR of Mar 2009 required
“in-flight simulation” facilities; and the HTT-40 currently being developed by
HAL also has these. But the PC-7 Mark II does not, and the relaxation of this
condition made it eligible for the IAF tender.

Other
relaxations that made the Pilatus trainer eligible include: increasing the
take-off distance from 700 to 1000 metres; and reducing maximum speed from 475
kmph to 400 kmph.

On Monday,
this newspaper had reported (“Indian Air Force at war with Hindustan
Aeronautics; wants to import, not build, a trainer) about a personal letter earlier
this month from Air Chief Marshal NAK Browne, the IAF chief, to Defence
Minister AK Antony, asking for HAL’s trainer project to be scrapped and another
106 PC-7 Mark II trainers be imported from Pilatus, a purchase that will
benefit the Swiss company by an estimated $800 million (Rs 4,750 crore).

Browne’s involvement with the basic trainer dates back
several years. From Mar 2007
to May 2009, he was Deputy Chief of Air Staff (DCAS) at IAF
headquarters, handling all IAF acquisitions. Four months after he handed over to Air Marshal NV
Tyagi (not to be confused with the former IAF chief, SC Tyagi), the IAF issued
the ASQR, with the relaxations that benefited Pilatus.

Contacted
for comments, NV Tyagi told Business Standard that the PSQR of Mar 2009 set
unrealistically high standards for HAL to meet, but those were lowered in the
Oct 2009 ASQR because the IAF was going in for global procurement. Lower
standards would bring in more vendors and generate competition.

Says Tyagi,
"The earlier PSQRs matched the performance of the Embraer Super
Tucano, which many IAF officers considered a good trainer. But the IAF didn't
believe that HAL could build such a trainer quickly. After a series of HPT-32
crashes [then the IAF’s basic trainer] it was decided in September 2009 to buy
75 basic trainers from the global market. Fresh QRs were framed in order to
bring as many vendors as possible into the tender."

It remains unclear why exacting standards set for a
HAL-built trainer were lowered when it came to an international purchase.

Monday, 29 July 2013

In a letter to defence minister, IAF
chief criticizes HAL’s proposal to design and build aircraft for rookie pilots

By Ajai Shukla

Business Standard, 29th July 13

Indian Air Force (IAF) chief, Air Chief Marshal NAK Browne,
has assailed Hindustan Aeronautics Ltd (HAL), which builds most of the fighter
aircraft that the IAF flies. Writing directly to Defence Minister AK Antony in
the first week of July, Browne has savaged HAL’s proposal to design and build a
basic trainer aircraft (BTA) for rookie IAF pilots. Rejecting the HAL proposal,
Browne has urged Antony to import 106 PC-7 Mark II trainers from Swiss company,
Pilatus. These will be over and above the 75 trainers already contracted for US
$640 million (Rs 3,780 crore).

Business Standard
has a copy of Browne’s five-page letter to Antony. Contacted for comments, the
IAF and HAL have both chosen to remain silent on the issue.

At stake is an estimated $800 million (Rs 4,750) for
Pilatus, if Antony accepts Browne’s recommendation to give the Swiss company, rather
than HAL, the 106-aircraft order.

On Sep 29, 2009, the ministry of defence (MoD) had cleared the
acquisition of 181 BTAs for the IAF. 75 were to be procured internationally, a
contract that Pilatus controversially won. Meanwhile, HAL was to design and
develop 106 BTA in India.

Now the air chief has requested Antony, “To meet the
immediate flying training requirements of the IAF, the ‘Option Clause’ be
exercised to procure 38 PC-7 Mk II from M/s Pilatus Aircraft Ltd, as directed
by [the MoD] on 29 September 2009. The subsequent requirement of 68 BTA could
be met through Repeat Procurement.”

Repeat Procurement is the simplified, swift procurement of
equipment that is already in Indian military service. User trials are dispensed
with.

Browne argues that HAL, in its detailed project report to
the MoD, has underpriced the HTT-40. Rubbishing HAL’s projected cost of Rs 32.70
crore per aircraft, Browne says the HTT-40 will actually cost Rs 43.59 crore at
2011 prices.

The extra cost per aircraft, according to Browne, includes Rs
1.81 crore as the cost of production; and Rs 7.11 crore as the cost of design
& development, of which the IAF must pay 80 per cent. A 16 per cent rise in
the cost of the dollar will add another Rs 1.97 crore per aircraft, taking the
price up to Rs 43.59 crore.

Then Browne adds 4.5 per cent annual inflation to these prices,
which are on a 2011 base. That raises the HTT-40’s per unit cost to Rs 59.31
crore in 2018 (when the HTT-40 would start being delivered) and Rs 64.77 crore
in 2020.

In contrast to this gloomy forecast, Browne paints a rosy
picture for the PC-7 Mk II, stating that Pilatus costs just Rs 30 crore per
aircraft, a price that will apply also to the “options clause” for another 38
PC-7 Mk II. “Hence the HTT-40 will be more expensive to the IAF when compared
to the PC-7 Mk II by over 89% from 2018 onwards,” writes the IAF chief.

In fact, the Pilatus contract freezes the price only for the
next 38 trainers under the “options clause”, but the final tranche of 68
aircraft would be negotiated afresh, subject to inflation and forex variations.
Furthermore, since the forex component of the PC-7 Mk II is 100 per cent,
compared to just 30 per cent for the HTT-40 (Browne’s figures), any adverse
change in exchange rates would escalate Pilatus’ cost far more than HAL’s.

Surprising experts also is the IAF chief’s inexplicable
oversight in omitting any mention of decades of heavy payout to Pilatus for
maintenance, overhauls, spares and upgrades. With the MiG-21, MiG-27, MiG-29
and the Mirage 2000, these cost up to ten times as much as the initial purchase
cost of the aircraft.

Amit Cowshish, former Financial Advisor (Acquisition) &
Additional Secretary with the MoD says, “Over the service life of a foreign
aircraft, its spares, maintenance, overhaul and upgrade from abroad could cost
several times more than the basic cost of the aircraft, as we saw with many IAF
fighters. It is impossible to contractually bind a vendor down to fixed prices
for spares, upgrades and overhauls over the entire life cycle of the platform,
which might stretch over decades. The actual cost incurred over years could be
much more than what was anticipated at the time of purchase.”

Nor does Browne’s letter put a price on the design and
manufacturing expertise that the HTT-40 would generate in India, and on the eco-system
of vendors and sub-vendors that would be created, generating high-tech jobs and
expertise.

HAL, usually on the defensive against the IAF, has reacted
defiantly. Business Standard learns
that work is underway on the HTT-40, financed by Rs 150 crore that HAL’s board
has committed from internal funds. HAL says that foreign buyers would be
interested in the trainer even if the IAF is not. So too would the navy and
army, whose expanding aviation wings would lead to them training their own
pilots instead of continuing to rely on the IAF.

HAL designers also claim that the HTT-40 will be far more
capable and versatile than the PC-7 Mk II, which is a de-rated version of the
PC-9 trainer. The HTT-40 will be a weaponised trainer that is also a light
attack aircraft. For political reasons, Pilatus removed the weapons hard points
from the PC-7 Mk II trainers that they sold the South African air force. The
same is true for the BTAs sold to India.

The air chief’s letter cites HAL’s record of delays,
specifically mentioning the Light Combat Helicopter and the Light Utility
Helicopter. Browne charges, “HAL routinely seeks approval for a small project
completion period… without achieving it.”

The IAF chief cites the MoD’s ruling in 2010 that more Pilatus
trainers would be bought if the HTT-40 had not yet flown by the time the first
Pilatus trainers were delivered to the IAF. Today, 14 Pilatus trainers have
already been delivered, and Browne claims that Pilatus will deliver 30 trainers
per year to the IAF.

On July 8, the first IAF batch of trainee pilots began
learning to fly on the Pilatus PC-7 Mark II at the IAF Academy at Dindigul,
near Hyderabad.

Saturday, 27 July 2013

Defence Minister AK Antony with his French counterpart, Jean-Yvonne Le Drian in New Delhi on Friday, 26th June

By Ajai Shukla

Business Standard, 27th July 13

A day after the chief of French aerospace giant, Dassault
Aviation, emphasized the criticality of an early Rafale contract with India,
French Defence Minister Jean-Yves Le Drian on Friday highlighted the hard
strategic decisions imposed by his country’s declining defence budget --- which
made India’s early purchase of the Rafale so crucial for Dassault.

Le Drian, on a two-day visit to India, was speaking in New
Delhi on the French White Paper on Defence and National Security, issued by Paris
two months ago.

The 2013 White Paper recognizes that France has neither the
means, nor the strategic will after Afghanistan, to exert influence across the
globe. Defence spending has been cut to well below the NATO-recommended level
of 2 per cent of GDP, potentially irking France’s NATO allies. The 2,80,000
strong military will be slashed by 34,000 personnel.

Rather than a fringe role in the US “Pivot to Asia”, Paris is
adopting a “Euro-Atlantic-African Pivot”, focusing military attention on Europe,
West Asia and the African Sahel, its old colonial stomping ground just south of
the Sahara.

No major weapons programmes have been cancelled, but several
have been pared down, including the French fighter force. Instead of 300 Rafale
and Mirage 2000-D fighters envisioned in the 2008 White Paper, France must make
do with just 225 fighters. For Dassault, this means fewer orders for the
Rafale. The fleet of 294 Rafales originally planned is now a distant memory.
The French army and navy have actually ordered only 180 Rafales, of which about
120 have been delivered.

The French government says it will not order more Rafales
and that Dassault’s manufacturing line would continues running only if foreign
orders came in. For Dassault, the challenge is to bag at least one big foreign
contract --- India would be ideal --- before the line shuts down on completion
of the French order.

Paris has obliged Dassault by accepting just 11 Rafales per
year, which is the minimum number needed to keep the production line rolling.
In 2009, production was cut from 14 Rafales per year to just 11, to keep the
line open for longer.

Besides 126 fighters to India, Dassault hopes to sell Brazil
36 Rafales, Kuwait 28, Qatar 24-36, and the UAE 60 fighters. The company has lost
procurement contests in Algeria, Greece, Morocco, The Netherlands, Norway,
Oman, Saudi Arabia, Singapore, South Korea, Switzerland and the UAE (where it could
still win a subsequent order).

Some of these buyers are watching India’s decision-making
keenly. Dassault believes that an Indian contract would precipitate orders from
others.

But nobody knows better than Dassault that the future of the
Rafale is not indefinite. The company is leading an international consortium to
develop an unmanned combat aerial vehicle (UCAV) called the nEUROn. As UCAVs
become technologically viable, they will increasingly replace manned fighters
in procurement calculations.

Given the high stakes for Paris, and for Dassault, in the
IAF’s Rafale purchase, Le Drian responded in a measured manner to questions
about the delay in concluding a contract. “We have to abide by the procedures
of the Indian state. It deserves time to explore, check, ensure that things are
rightly done so that two years down you don’t face a blockage or impasse,” he
said.

On Saturday, Le Drian will travel to Gwalior to visit the
IAF’s three squadrons that fly the Mirage 2000 fighter. In 2011, French
company, Thales, bagged a US $2.4 billion contract to upgrade India’s Mirage
2000 fleet, a contract that is currently being executed.